‘Rubber industry should develop a vision for 2022’

Dr YOGARATNAM

Despite the impressive progress of Sri Lankan rubber industry, it is still plagued by a series of vital issues such as: the incapability of the aged tappers which can affect NR productivity the most, declining planted area, labour shortage, low land and worker productivity, high cost of production , inadequate resources, social disparity, poverty in estates etc.

NR prices

Natural rubber (NR) is perhaps one of the few agro-based industrial raw materials which gave a decent return to the producers in 2011. NR price was rising steadily from the beginning of the year and touched US$ 6 mark and this upward trend continued until mid-June, 2011. A similar trend was seen at the Colombo auctions too.

The price came down later owing to the slow growth of the global economy which impacted the demand for rubber. Declines in rubber price in the futures market also influenced spot trades. But the market did not fall flat as demand for rubber did not fall in tandem in view of the robust growth in vehicle sales and the consequent enhanced demand for tyres and auto rubber components.

The gravity of the current global economic situation, particularly the situation in many advanced economies, points to the fact that putting the economy back to the recovery path may take a much longer time than what was anticipated a year ago. To be more specific, there is little possibility for the global economy to return to a recovery path by first quarter of 2012. Under such an unfavourable global economic condition, rubber demand is likely to stay sluggish during the first quarter of 2012.

Vision 2022

Rubber industry should, therefore, develop vision for 2022 to cover the next 10-year period, for long term sustainability, and set out revised goals for the industry. This should very broadly include, enhancing productivity and competitiveness and modernizing both the coporate and smallholder secters in order to maximise the industry's contribution to the national economy. In tandem with these rapid changes, it is vital that the industry re-examines its strategies, taking into consideration the changing scenario and developments.ÿ

In this regard, the major strategies should outline the prioritisation, implementation and the expected outcomes that industry would undertake in order to ensure the continued viability of a fully integrated rubber industry through the generation of sustainable income and returns.

The underlying thrust of the action plans under the strategies should be to ensure that barriers to the growth of the rubber industry are removed and the execution of the strategies at the right time to bring sustainable benefits to the stakeholders.

Value addition

Asia has the largest base in making rubber products. With advent of the World Trade Organisation and the consequent globalisation of trade, many multinational companies from Europe and North America started rubber manufacturing ventures in the cost effective Asian countries, particularly in China. Most of the natural rubber producing countries attracted investment of multinationals on account of less labour cost, availability of technically educated manpower and the major raw material, ie NR.

This has helped advanced technologies in product manufacture to percolate into the Asian region and Asia is now better placed to provide quality rubber products to the world market.ÿ

In addition to tyres, Asia has supremacy over other continents in production of industrial, engineering and general rubber goods. Besides the majors China and Japan, countries like the Republic of Korea, Taiwan, India, Malaysia, Thailand, Indonesia, Sri Lanka, Philippines, Israel, Iran, Pakistan, Vietnam and Bangladesh have reasonably good rubber manufacturing ventures. In the production of dipped goods like gloves and condoms and medical rubber products, Asia has the virtual monopoly. That lead is likely to continue unabated at least in the next decade.

Sri Lanka

Within a relatively short period, the Sri Lankan rubber products manufacturing industry has successfully evolved from a relatively small and unknown entity and has become a reputable major world supplier of quality rubber products.

Sri Lanka has the potential to be one of the world leading rubber product manufacturing countries due to its production of high quality raw materials; top quality grade of NR with a very low level of proteins, high quality production of RSS and relatively low processing cost. Wide variety of rubber products are currently manufactured by the rubber manufacturing sector in Sri Lanka.

Surgical, household, agricultural and examination gloves, balloons, hallowing masks and rubber toys are among the major products manufactured by the Latex industries in SL.

Latex industry has expanded significantly over the last decade and presently it attributes to around 35% of the local consumption of NR. Some of the leading rubber product manufacturers in the country are ,Ansell Lanka(Pvt), DSI Group, Loadstar Ltd, Hanwella Rubber Products Ltd, Lalan Group, Dipped Products Ltd , Trelleborg (Pvt) Ltd, Associated Motorways Ltd, Richard Peries Grop etc. Loadstar has recently introduced some innovations in their manufacturing technology by linking nanotechnology.

In terms of export value, the rubber products industry (tyres, tyre cases,and tubes, plates, sheets and strips, surgical Gloves and other Gloves, Floor coverings and mats etc.) recorded a high growth of 45% from Rs 44,163 million in 2009 to Rs 64,033 million in 2010 due to increased global demand for these products .

Looking at Malaysian?s performance, natural rubber production in 2010 wasÿ939,241 tonnes compared withÿ857,019 tonnes in 2009.ÿThe domestic consumption of natural rubber for 2010 was 642,996 tonnes.

The natural rubber consuming industries for 2010 were latex products (79.3%), tyres (9.8%), general rubber products (7.3%), industrial rubber products (3.4%) and others (0.2%).ÿThe rapid growth of the industry has enabled Malaysia to become the world's largest consumer of natural rubber latex.

Therefore, continued efforts at value addition should be made in Sri Lanka, thereby transferring rubber from a ?ommodity?to an ?ndustrial product. If an earnest effort is attempted in this direction, Sri Lanka could also, become a leading exporter of NR based products.

Support

The rubber products industry will need to diversify further, emphasising on high value-added and high technology rubber products, such as products for engineering, construction and marine applications. More R&D efforts need to be undertaken in product development and downstream activities.

New areas for promotion should include the extraction of biochemical products from latex using biotechnology. These efforts will ensure the continuous improvement in the products quality to maintain competitiveness in the export market.

The government should continue to promote the development of Sri Lanka?s resource-based industries to diversify the country's sources of growth. In addition to fiscal incentives which are made available for promoted products and activities, the government should further fine-tune the incentives to promote specific activities among which is the rubber products industry. To further encourage investments in resource-based industries, local companies in the rubber industry that reinvest to expand their projects should be made eligible for further Investment Tax concessions.

Therefore, rapid expansion of the rubber products industry can only be achieved by implementing several factors such as well-planned and focused industrial growth strategies, unfailing Government commitment, political and economic stability, stable infrastructure, forward-thinking Government policies, a large pool of well-trained local workforce, a pragmatic R & D policy as well as technical and product testing support.

In line with this aspiration, the industry should continue to intensify its R&D efforts to give emphasis to the downstream, value-added sector. Selected areas of R&D in the upstream should continue to be emphasized in order to maintain the industry?s competitiveness.

In addition, as one of the world leaders in R&D of NR, the Rubber Research Board should continue to be a resource centre for the supply of trained, experienced and highly qualified manpower for the rubber industry, especially the downstream rubber products sector.ÿResearch should also develop low-tech cost effective products for value addition by Small/ Medium Enterprises themselves.

The RRB should in collaboration with the NIPM continue to conduct training to fulfill every requirement of the NR industry, including plantation and industrial courses as well as transfer of technology to entrepreneurs on the manufacturing of rubber products. In order to address the issue on tapper shortage, concerted efforts should be made to train youngsters, whether they are from plantations or in the villages in the plantation areas, does not matter, and offer an attractive remuneration package for them to function as tappers.

Smallholder development

The current NR prices of over Rs 400/= per kg has managed to lift a great majority of smallholders above the poverty line. It has also managed to bring some of idle rubber areas into production. This price level has also attracted the estate sector to replant some of their areas.

Natural rubber should therefore be regarded as a strategic crop. Its socio-economic importance cannot be denied as it sustains the livelihood of about 130,000 smallholder families in the Low Country Wet and Intermediate Zones. The economic well-being of the smallholders is thus of considerable concern to ensure continuous stability in the rubber sector in the rural areas.

The current and future prices will be the determinant factors in the selection of the crop to be planted when the old trees are due for replanting. Any selection of crop to be planted will take at least 20 years cycle before replanting again.

Due to traditionally depressed and protracted low NR prices in the 1990s and 2000s, few rubber areas were converted to other more lucrative crops, especially oil palm (with no regrets now).ÿTherefore, to encourage the existing smallholders to remain in rubber as well as to encourage other smallholders to venture into rubber cultivation, NR prices must remain remunerative and ensure sustainability of the industry. Smallholder extent is expected to grow further in Sri Lanka with rubber being planted outside the traditional areas although the level of productivity is debatable in such areas.

Productivity

Another area of priority is Productivity. In Sri Lanka, the rubber small holding sector has been contributing significantly.

Their contribution in 2010 was around 79 % of the national production. Five years ago, it had been 65 % by the smallholders and 35 % by the RPCs. Despite several constraints, the smallholder sector has been demonstrating an increasing trend in performance with an increase of 16 % over their production in the previous year. Sri Lankan smallholdings productivity is in the region of 1290 kg/ha where as in Malaysia it is around,1330 to 1440 and in Indonesia it is in the range of, 1250 to 1500 kg/ha. However, Sri Lanka?s national productivity is in the region of 1437 kg/ha, which probably is due to higher productivity in the corporate sector.

Land productivity potential suggests that Sri Lanka has the capacity to increase her total production by increasing productivity levels in existing areas by replanting with high yielding clones and following accepted management practices.

Achieving a productivity of 2000 kg/ha/year and a total production of about 200 mn kg from a tapped area of about 100, 000 ha by 2020, should be the industry's goal.

Conclusion

Rubber growers in Sri Lanka are still making huge profits with NR prices stabilizing around Rs 400/= per kilo and the cost of production around Rs 250/=.

The tyre Industry, however has been passing through an extremely difficult phase of continuous and significant increase in the price of natural rubber and other key raw materials.

Since raw materials account for approximately 70 per cent of industry turnover, the input cost pressure has resulted in severe erosion of their net margins.